The pipeline would deliver 700,000 barrels a day of crude from Alberta's oil sands to Texas refineries. But environmentalists strongly oppose the project, because of the route, concerns about spills and carbon emissions from production of oil sands crude.

In the deal with Nebraska, the state would pay for the new studies to find a route that would avoid the Sandhills region and the Ogallala aquifer, which provides water for millions in the area.

"I believe we will put the routing issue completely behind us," said Alex Pourbaix, TransCanada's president of Energy and Oil Pipelines. "We have heard and we have listened to the people of the Sandhills."

The agreement will not change the timeline for a federal review, said a spokesman for the U.S. State Department, which has final approval for the project because it crosses an international border.

"Nothing has changed in the process since last Thursday's announcement as any new proposed routes will be subject to the thorough, rigorous and transparent review process we have undertaken throughout," said Mark Toner, deputy spokesman for the department.

"Given the process, we cannot provide a specific end-date, other than to say that based on the total mileage of potential alternative routes that would need to be reviewed, we anticipate the evaluation could conclude as early as first quarter of 2013," Toner said.

That means the Obama Administration will likely not have to deal with the politically charged issue until after the 2012 election.

Nebraska state legislators will vote on the deal on Tuesday, Mike Flood, the legislature's speaker said.

"TransCanada is willing to consider a route that sites the pipeline out of the Sand Hills," said Flood. "This is our land. These are our people. We will pay for this. It's the right thing to do."

In Washington to lobby for Keystone, Alberta Premier Alison Redford said the announcement was "good news."

"It's something I can be more optimistic about now than I could have been this morning," said Redford, emerging from a meeting with House Speaker John Boehner.

But the Republican chairman of the House Energy and Commerce committee, who was part of the meeting in Boehner's office, was less optimistic the deal could lead to a quicker decision.

"If they look at rerouting, that takes a long time," committee chairman Fred Upton said.

(Additional reporting by Roberta Rampton in Washington and Paul Eckert in Guam, writing by Scott Haggett and Russell Blinch; editing by Rob Wilson, David Gregorio, Bob Burgdorfer and Carol Bishopric)